March 19, 2013 / 8:15 PM / in 6 years

Adobe raises profit forecast as subscription model gains traction

(Reuters) - Adobe Systems Inc, maker of Photoshop and Acrobat software, raised its full-year adjusted earnings forecast after reporting first-quarter results above Wall Street estimates as more customers chose its subscription-based model.

The company raised its full-year adjusted earnings forecast to about $1.45 per share from about $1.40 per share, above analysts’ estimates of $1.41 per share.

Shares of the company, which said Chief Technology Officer Kevin Lynch would be leaving, rose 7 percent in extended trade.

Adobe has been shifting to web-based subscription service Creative Cloud since last year from a licensing model.

“We’re seeing higher-than-expected conversion rate to the paid model and that’s a very positive sign. What that implies is that customers are happy,” Edward Jones analyst Josh Olson said.

Creative Cloud enables a customer to subscribe to the company’s Creative Suite that includes its popular design titles such as Photoshop, Illustrator, InDesign, Flash and Dreamweaver.

“The growth is coming from attracting a whole new class of creative professionals,” Chief Executive Shantanu Narayen said of Creative Cloud on CNBC.

Adobe said its Creative Cloud exceeded 500,000 paid individual members and free and trial memberships exceeded 2 million, which the company said could lead to more paid membership.

The company said it added about 153,000 net paid subscriptions during the first quarter and that it expects to reach 1.25 million paid subscriptions by the end of this year.

“It looks like consumers are choosing the Creative Cloud... and that’s what seems to be driving the results, driving the stock,” Macquarie Research analyst Brad Zelnick told Reuters.

Adobe backed its full-year revenue forecast of about $4.1 billion.

Lynch, who had been CTO since 2008, would be leaving effective March 22 to take a position at Apple Inc, Adobe told Reuters in an email.

“We will not be replacing the CTO,” an Adobe spokesperson said.


Net income fell to $65.1 million, or 13 cents per share, in the first quarter, from $185.2 million, or 37 cents per share, a year earlier.

Excluding items, the company earned 35 cents per share.

Analysts on average expected adjusted earnings of 31 cents per share, according to Thomson Reuters I/B/E/S.

Total revenue, however, fell 4 percent to $1 billion due to the transition to the subscription model, but beat analysts’ expectation of $986 million.

Subscription revenue more than doubled to $224.3 million.

Adobe’s revenue beat analysts’ estimates for the second consecutive quarter.

A rapid adoption of subscription model tends to lower revenue in the short term as fees are collected monthly, instead of upfront one-time payment.

Adobe shares, which have risen about 10 percent in the last three months, were up 7 percent at $43.45 in aftermarket trading. They closed at $40.75 on the Nasdaq on Tuesday.

Reporting by Chandni Doulatramani and Supantha Mukherjee in Bangalore and Edwin Chan in San Francisco; Editing by Sriraj Kalluvila

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